Chapter 8.1, Problem 17E

The November 24, 2001, issue of The Economist published economic data for 15 industrialized nations. Included were the percent changes in gross domestic product (GDP), industrial production (IP), consumer prices (CP), and producer prices (PP) from Fall 2000 to Fall 2001, and the unemployment rate in Fall 2001 (UNEMP). An economist wants to construct a model to predict GDP from the other variables. A fit of the model

$\text{GDP}={\beta }_0+{\beta }_1\text{IP}+{\beta }_2\text{UNEMP}+{\beta }_3\text{CP}+{\beta }_4\text{PP}+\epsilon$

yields the following output:

1. a. Predict the percent change in GDP for a country with IP = 0.5, UNEMP = 5.7, CP = 3.0, and PP = 4.1.
2. b. If two countries differ in unemployment rate by 1%, by how much would you predict their percent changes in GDP to differ, other things being equal?
3. c. CP and PP are both measures of the inflation rate. Which one is more useful in predicting GDP? Explain.
4. d. The producer price index for Sweden in September 2000 was 4.0, and for Austria it was 6.0. Other things being equal, for which country would you expect the percent change in GDP to be larger? Explain.